Rivermore College: Mean-Variance Optimization Case
Rivermore College
This is a mean-variance optimization case.
Software needs: Spreadsheet optimizer (Excel Solver) or use a commercial package.
Concepts: performance evaluation with historical data, forecasting asset returns, portfolio choice with input uncertainty.
Computer skills: development and/or use of a mean-variance optimizer
Case
Roberta Tyler consultants to several university investment offices around the country.
She specializes in asset allocation studies. She has accumulated performance figures from a number of different university endowments, as well as information about the typical stocks/bonds/cash mixtures common in the endowment universe. She practices a broad policy approach which means that she makes recommendations about allocations across asset classes, rather than about which managers to choose, or which stocks to pick.
Rivermore College is a small mid-western school with a $130 million endowment as of Dec. 31, 1994. It has long had a fixed investment policy of 50% stocks, 20%
Corporate Bonds 20% Government Bonds and 10% cash which has yielded a solid record of performance over the years 1970 through 1994. These are Reported in the table at the end of the document. Rivermore rebalances each year in order to maintain the fixed proportions. This requires, for instance, selling equities when they go up, and buying bonds after a down year. Their equity manager is a successful alumnus of the school who appears frequently on Wall Street Week, and is renowned as a cautious but consistent large-cap stock picker. The bond portfolio is managed by
Stanley Morgan Capital, in New York. Most of Rivermore's assets are liquid.
Occasionally, real estate donations have been made to the university, particularly in the form of bequests by wealthy alumni. These were generally liquidated in timely fashion, unless the property itself was useful to the college. The university itself is located in a prosperous residential section of
This is a mean-variance optimization case.
Software needs: Spreadsheet optimizer (Excel Solver) or use a commercial package.
Concepts: performance evaluation with historical data, forecasting asset returns, portfolio choice with input uncertainty.
Computer skills: development and/or use of a mean-variance optimizer
Case
Roberta Tyler consultants to several university investment offices around the country.
She specializes in asset allocation studies. She has accumulated performance figures from a number of different university endowments, as well as information about the typical stocks/bonds/cash mixtures common in the endowment universe. She practices a broad policy approach which means that she makes recommendations about allocations across asset classes, rather than about which managers to choose, or which stocks to pick.
Rivermore College is a small mid-western school with a $130 million endowment as of Dec. 31, 1994. It has long had a fixed investment policy of 50% stocks, 20%
Corporate Bonds 20% Government Bonds and 10% cash which has yielded a solid record of performance over the years 1970 through 1994. These are Reported in the table at the end of the document. Rivermore rebalances each year in order to maintain the fixed proportions. This requires, for instance, selling equities when they go up, and buying bonds after a down year. Their equity manager is a successful alumnus of the school who appears frequently on Wall Street Week, and is renowned as a cautious but consistent large-cap stock picker. The bond portfolio is managed by
Stanley Morgan Capital, in New York. Most of Rivermore's assets are liquid.
Occasionally, real estate donations have been made to the university, particularly in the form of bequests by wealthy alumni. These were generally liquidated in timely fashion, unless the property itself was useful to the college. The university itself is located in a prosperous residential section of